STONY BROOK, N.Y. — After many decades of essentially ignoring the role of land, economists are starting to reconsider. Some are worried that landlords are hurting growth by making it too expensive to live in highly productive cities. Now, some are starting to think about how land figures into the rise in inequality.

The basic idea is that landlords are stacking the deck. Using their money and connections to sway local elections, they can influence politicians to enact land-use regulations that keep out other people and businesses.

ABOUT THE AUTHOR

Noah Smith is a Bloomberg View columnist and an assistant professor of finance at Stony Brook University.

At first, people who want to move for work or to start a business can head to other, newer cities where local landlords are not as politically entrenched and regulation is not yet as onerous. But eventually the country fills up with powerful landowners, and the options for cheap relocation become limited. Stuck in dying cities or far away from job opportunities, potential employees languish in poverty.

That unpleasant narrative might now be playing out in the U.S. Jason Furman, head of the Council of Economic Advisers, gave a recent speech to the Urban Institute in which he painted just such a picture. He noted that Americans are moving far less than they used to, and are also switching jobs less frequently.

According to Furman, some of the change may be due to more zoning. Since the late 1970s, land-use regulation has skyrocketed in the U.S. That has caused housing prices to go up at a much faster rate than construction costs, locking potential homeowners out of the market. The more zoned a city is, the less affordable it tends to be. Bloomberg View’s Justin Fox recently reported on how many fewer apartments are built these days. Undoubtedly, much of that is because of stricter land-use regulation.

Lack of affordability doesn’t just create inequality among individuals; it creates inequality across regions. Furman shows that states with a more constrained housing supply have seen much slower income convergence between different cities. That strongly implies that land-use restrictions are effectively keeping people penned up in bad locations.

Of course, this is in addition to the other problems that zoning causes, such as the environmental costs of sprawl, the potential exacerbation of housing bubbles and the productivity drag from reduced density.

The new spotlight on zoning is causing even traditional proponents of government intervention to call for regulatory reform. Paul Krugman notes that the recent influx of wealthy people into big cities means that we need to deregulate land use and increase the stock of housing: “This is an issue on which you don’t have to be a conservative to believe that we have too much regulation. … New York City can’t do much if anything about soaring inequality of incomes, but it could do a lot to increase the supply of housing, and thereby ensure that the inward migration of the elite doesn’t drive out everyone else.”

Unfortunately, calls for relaxing zoning regulations are likely to go nowhere. The reason is obvious. Existing landlords have lots of power in local politics, while potential landlords and tenants, because they are still living elsewhere, have zero.

Of course, local renters, including businesses, have a stake in lifting zoning restrictions, in order to encourage more outsiders to move in, boost a city’s economy and increase its income level. But this is a diffuse, disunited constituency, while landlords are organized and motivated.

Some economists have theorized that regional competition would be enough to prevent such a dystopian outcome. But in the real world, politics may cause regions to do things that are not in their long-term self-interest – like strangling their economies with land-use restrictions.

If zoning really is a major drain on the U.S. economy, it opens the possibility of a bipartisan coalition. Conservatives are interested in limiting regulation overall, while liberals would like to reduce inequality. Since this is one of the clearest cases where regulation is increasing inequality, politicians on both sides of the ideological divide should figure out a way to come together to work out reforms.

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harveyr1

“Conservatives are interested in limiting regulation overall, while liberals would like to reduce inequality.”
Mr. Smith, you say this like you believe Conservatives are against equality. The only thing Conservatives have been saying is that the inequality is not a result of capitalism as liberals have insisted. Your article seems to prove it. Government intervention is not as good as the liberals would like to believe. Exactly what Conservatives have been saying for….well…forever.

blue__sun

so you whine about the author painting conservatives with a broad brush then in the next sentence do the same thing, only you smear liberals- see something wrong with this picture harv

harveyr1

blue_sun: not exactly what I said, but nice try. Try reading a little more carefully and you’ll understand what I said.
Question for you: Do you, as a liberal, believe that the role of the government is to intervene in aspects of your, and everyone else’s lives?

blue__sun

Well this story certainly isnt Portland. Most if not all the larger property owners/ developers here would love nothing more than having land use reg’s relaxed so that they could create additional units in the properties they already own, convert parking lots into buildings and have greater opportunity in any future projects. The obstructionist in Portlands picture are inflexible preservationist who think that essentially the whole city should retain some Victorian era look with no buildings over 3 stories.

SPLAX

Your last sentence I don’t agree with.I think most people live in Portland because of what Portland has and has retained all these years.It’s not the best and not the worst,but what we had was and is beautiful.We don’t want a city sky line that cast shadows,making a city a ‘structure’ with no vision beyond a faux brick wall.We didn’t need a 4 165 ft.tall buildings lining our city’s skyline.We have great education,low crime, high taxes but we manage.So why do all the young out of staters want to live in Portland Maine?It’s a sweet place to live.It’s a good thing here,why mess it up.And we do have surrounding communities.

(If you want buildings over 3 stories move to Boston-real picturesque city skyline,millions of autos and no filth at all! But plenty of professional jobs)